Bank lending to the agricultural sector, historically low and problematic, showed promise in latest survey jointly conducted by the Bangko Sentral ng Pilipinas (BSP) and the Agricultural Credit Policy Council (ACPC), which works under the Department of Agriculture (DA).
According to the survey, bank lending to the agriculture sector improved during the pandemic years by 36.7 percent to P213.07 billion in 2022 from only P155.9 billion in 2021.
The BSP attributed the increase the growing demand for agri loans as the sector slowly recovers from the ravages of the COVID pandemic and the enactment of the Republic Act 11901 or the Agriculture, Fisheries and Rural Development Financing Enhancement Act which took effect in 2022.
This was also the period when the value of non-agricultural loans increased by 34.2 percent to P2.8 trillion that year from P2.1 trillion the year before.
Banks acknowledge that lending to the agri sector is inherently risky due the sector’s vulnerability to natural calamities, harvest uncertainties, borrower income levels and its aging population. Nevertheless, the share of agri loans to total loans increased to 18.1 percent in 2022 from only 17.6 percent in 2021.
The loans, the joint survey found, were dispensed for the most part by rural cooperative banks (RCBs) across the country, complementing the work done by government banks that cater to small agricultural borrowers as farmers and fisherfolk.
Such loans were for purposes of acquiring seeds, fertilizer, poultry, livestock, feeds and similar small items. The loans were obtained also as working capital for basic agricultural crops, acquisition of work animals, farm and fishery equipment and machineries.
The large universal and commercial banks only catered to the large-scale agri borrowers mostly Luzon-based. RCBs were observed to follow this pattern but have significantly less borrowers in the National Capital Region.
Agri lending in Mindanao, the BSP noted, were dispensed by privately-owned thrift banks which have more clients there.
Government banks have similar numbers of borrowers outside NCR, with Mindanao borrowers slightly higher, it said.
Agri loan interest rates were expensive, ranging from 12 percent to 18 percent across the banks, and far more than that charged on non-agri loans ranging only from 7.5 percent to 16 percent,
“Rural cooperative banks within the NCR registered the highest interest rates on agricultural loans ranging from 16 percent to 21 percent, while RCBs outside NCR and thrift banks showed a slightly wider interest rate range from 13 percent to 20 percent.
“Conversely, interest rates on agri loans of UKBs and GBs ranged between 4.6 percent and 7.2 percent, and 3.3 percent and 6.6 percent, respectively,” the BSP said.
Agri loan repayment across the banks averaged 67 percent, with government banks declaring a higher repayment rate of 70 percent.
The past due ratio on agri loans improved during this period to only 9.4 percent from 10.8 percent. The large commercial banks and government banks reported significant declines in past due agri loans from 7.3 percent in 2021 to only 7.2 percent in 2022. Rural cooperative banks in NCR during the period also reported declines in agri loan NPL ratios, the BSP said.
According to the survey, the banks themselves forecast “improvements in loan volumes and loan quality, which are expected to bolster sustained and increased profitability. Specifically, survey respondents anticipate single-digit percentage growth in loan volume to the agri sector on average.”
Government banks project an increase in agri loans by over 5 percent, rural banks project 9 percent, the large universal and commercial banks less than 4 percent while thrift banks predict agri loan growth of 9 percent.
